Housing price changes from base 100 in 1990

[haha]

https://www.advisorperspectives.com.../22/fhfa-house-price-index-index-up-1-6-in-q2

I find this very interesting, not least in the question raised by the real price bottoming clearly above its long term base of 100 at the low in 10/1/2011.

It is frequently said that houses "only match inflation" but do not beat it. Maybe so, but this may have changed. I can find no reason to suppose that it hasn't, or could not. Also, an asset that only matched inflation but provided shelter is not half bad, and with even a modicum of judgment the situation is much more positive.

Nevertheless, this cannot inform our judgment as to whether this is a good time to buy a house in a given place or even any place.

Ha

 

[braumeister]

Those curves appear to be reasonably close to prices around here (flyover country).

 

[FlaGator]

This is useful, and more people need to be exposed to it, especially those with an expected holding period of <10 years.

The dataset for this series was historically limited to information collected from Fannie Mae and Freddie Mac, so it excluded both more expensive and lower-priced homes. Also limited to 1990 forward. May have changed in the last few years. The Case-Shiller/S&P index (look for it after the graphs) includes more transactions and is historically deeper. This index starts in 1953 because that's when public record real estate data started to be available commercially.

Agree with Ha that having something as important as shelter able to keep up with inflation is a winner.

I expect the speculators and part-time flippers to start emerging soon. These are the ones whose plans and self-confidence should be tempered by the cycles depicted in graphs.

 

[Out of Steam]

Real estate is very local. Our house is still about 10% shy of its 2007 price peak, without inflation adjustment. Five or six miles closer to the city, we would be 10-20% above that peak.

 

[DrRoy]

Real estate is very local.

+1. My house in Michigan would be double what I paid in 1998 according to the data. It is only up 20-25%.

 

[ncbill]

Just chopped nearly 20% off the tax re-valuation of my home based on recent comparative sales, even though it's within walking distance of a private ($$$) university.

I'll probably never sell it, converting it to a rental (for graduate students) if we move, as some nearby owners have done.

 

[Independent]

Nevertheless, this cannot inform our judgment as to whether this is a good time to buy a house in a given place or even any place.

Ha

Yes. Note their chart which compares house prices to "Owner's equivalent rent".

 

[FIREd]

Real estate is very local.

+1. I am sure that RE can be an excellent investment in some parts of the country (like the Bay Area), but this is not the case where I live at the moment. The best offer we received for our house earlier this year was 17% below what we paid for it back in 2005 (or 33% below what we paid when adjusted for inflation). The neighborhood has not lost of its attractiveness and the house is in better condition than it was 12 years ago (newer roof, A/C, etc...). But this is a slow growing area (not depressed) and it was overbuilt on the promise of demographic growth which mostly failed to materialize (the vacancy rate is ~12% around here). Foreclosures are still holding prices back too. Thankfully, we did not overextend ourselves when we purchased the house, which represents <7% of our assets. Still, a brief cost analysis shows that we would have been close to break even with renting over the past 12 years.

 

[W2R]

Real estate is very local.

That's for sure. Overall, real estate in the overall New Orleans area is OK, having gone up 5% in 2016.

However, this says nothing about individual neighborhoods. In our neighborhood, lesser houses than mine are selling very rapidly for more than 150% of what I paid in 2015. I didn't get a particularly good deal then, either, having paid the full asking price in cash. Yet a few miles away, real estate is stagnant or declining. Those neighborhoods are really suffering.

The reason for this is that our neighborhood has suddenly become extremely trendy, due to several reasons including some new local businesses within walking distance (and for privacy I won't go into what those businesses are, here). I guess we are just oh-so-cool now, or something.

Makes no difference to us, since we aren't planning to move, and since tax assessments haven't been updated for years so our property taxes are not affected. Mostly all of this just provides us with entertainment. We go on pleasure drives and I point out houses to F and mention what they sold for (these selling prices are publicly available, weekly). We exclaim in shock and laugh hysterically at what seems to us as total and extreme insanity.

But we also know that the situation could reverse some day and probably will. That's life.

 

[haha]

For those who are saying "my house has hardly appreciated" look at the Case-Shiller home price indexes. They show a 10 city average and a 20 city average and compare to the entire nation. The 10 city average shows the biggest gain, the 20 city average the next biggest, and US average least of all.

This makes sense, as recently employment gains have been concentrated in just a few industries and mainly concentrated in certain cities.

Ha

 

[FIREmenow]

For those who are saying "my house has hardly appreciated" look at the Case-Shiller home price indexes. They show a 10 city average and a 20 city average and compare to the entire nation. The 10 city average shows the biggest gain, the 20 city average the next biggest, and US average least of all.

This makes sense, as recently employment gains have been concentrated in just a few industries and mainly concentrated in certain cities.

Ha

Must be concentrated in my city.

We downsized to a VERY small townhouse 5 years ago and found a pre-foreclosure for a good price. It was just a place to hang out for the last 2-3 years of w*rk/power-savings - were only planning on getting our initial money back when we sold.

An identical unit just down from us sold for 60% more than we paid for ours in just 4 days on the market!

Geez!

 

[97guns]

In my personal ring of friends and family I have only 1 cousin that has lost a house through default but I have dozens of aunts, uncles, other cousins and friends that have become millionaires through real estate. A wide range of RE investors, and yes I consider the home you reside in to be an investment, probably the most stable and key to success investment one can make.

 

[Running_Man]

For those who are saying "my house has hardly appreciated" look at the Case-Shiller home price indexes. They show a 10 city average and a 20 city average and compare to the entire nation. The 10 city average shows the biggest gain, the 20 city average the next biggest, and US average least of all.

This makes sense, as recently employment gains have been concentrated in just a few industries and mainly concentrated in certain cities.

Ha

Doesnt' the housing index check the cost of all houses so an increase from 20 years ago would not be the increase of the housing of 20 years ago but the cost of finding similar housing 20 years later --- that is if average house was 15 years old and 2000 square feet in 1997 then a 15 year old house in 2017 with 2000 square feet would be the comparison, not a 35 year old house.

 

[FlaGator]

Doesnt' the housing index check the cost of all houses so an increase from 20 years ago would not be the increase of the housing of 20 years ago but the cost of finding similar housing 20 years later --- that is if average house was 15 years old and 2000 square feet in 1997 then a 15 year old house in 2017 with 2000 square feet would be the comparison, not a 35 year old house.

The general methodology uses "paired sales" and was initially developed by Karl Case and Bob Shiller. As an example, a house that sold for 100,000 in 2000 and then again in 2006 for 150,000 is one input to the calculation for the period 2000-2006. If that same house sold in 2010 for 140,000, that's another single input for 2006-2010.

Aggregate millions of transactions over decades, sort them by ZIP and you have a home price index. Have to deal with anomalous data and the usual things that go along with getting useful info from very large data sets.

There have been a variants developed such as "quality adjusted" (age and size among them, but that data is not universally available across the country) and creating separate indices based on price tiers.

 

[OldShooter]

... It is frequently said that houses "only match inflation" but do not beat it. Maybe so, but this may have changed. I can find no reason to suppose that it hasn't ...

Here's the reason: At the macro level, housing costs cannot increase substantially faster than personal incomes for very long and excursions will probably revert to near the historical mean. That is not to say the the data can't be noisy and there cannot be areas where it looks like prices will rise forever, but in the end people's ability to pay for housing is determined by personal income.

 

[haha]

Here's the reason: At the macro level, housing costs cannot increase substantially faster than personal incomes for very long and excursions will probably revert to near the historical mean. That is not to say the the data can't be noisy and there cannot be areas where it looks like prices will rise forever, but in the end people's ability to pay for housing is determined by personal income.

But that is really not a reason. For example, Seattle once had Boeing and satellite aerospace, Safeco, UW and of course hospitals and government offices Then in the 70s it got Microsoft. Now it has all these plus Amazon, Starbucks, and large offices of other tech companies with additional highly paid workers.

So the money available to pay for housing is increasing much faster than general inflation, because the workers are not in that same old system. Nevertheless, prices will not and cannot increase forever, unless there is another disruptive cycle of innovation and another large cohort of workers who are more productive and better paid than those who are already here. This can start another cycle.

Ha

 

[haha]

The general methodology uses "paired sales" and was initially developed by Karl Case and Bob Shiller. As an example, a house that sold for 100,000 in 2000 and then again in 2006 for 150,000 is one input to the calculation for the period 2000-2006. If that same house sold in 2010 for 140,000, that's another single input for 2006-2010.

Aggregate millions of transactions over decades, sort them by ZIP and you have a home price index. Have to deal with anomalous data and the usual things that go along with getting useful info from very large data sets.

There have been a variants developed such as "quality adjusted" (age and size among them, but that data is not universally available across the country) and creating separate indices based on price tiers.

Thanks for this excellent explanation.

Ha

 

[W2R]

Here's the reason: At the macro level, housing costs cannot increase substantially faster than personal incomes for very long and excursions will probably revert to near the historical mean. That is not to say the the data can't be noisy and there cannot be areas where it looks like prices will rise forever, but in the end people's ability to pay for housing is determined by personal income.

I guess the interest rate of available financing (if any) is involved as well. Interest rates have been low in recent years, but I remember mortgage rates were much higher back in the early 1980's.

 

[brucethebroker]

Just chopped nearly 20% off the tax re-valuation of my home based on recent comparative sales, even though it's within walking distance of a private ($$$) university.

I'll probably never sell it, converting it to a rental (for graduate students) if we move, as some nearby owners have done.

Solid plan.

 

[brucethebroker]

+1. My house in Michigan would be double what I paid in 1998 according to the data. It is only up 20-25%.

Yeah, that is the problem. I think the "localness" of real estate drives the academics crazy. Their computers just don't take into consideration differences (proximity to a school, vs. factory) in neighborhoods (even within a single zip code), condition of a particular home and amenities (pool, remodeled kitchen, etc.).
Local Realtors and appraisers with 15-20+ years experience, are the still the pricing experts.

 

[JoeWras]

Yeah, that is the problem. I think the "localness" of real estate drives the academics crazy. Their computers just don't take into consideration differences (proximity to a school, vs. factory) in neighborhoods (even within a single zip code), condition of a particular home and amenities (pool, remodeled kitchen, etc.).
Local Realtors and appraisers with 15-20+ years experience, are the still the pricing experts.

I think it is getting even more intense. Well, at least in my neck of the woods. Someone with clout around here has given our area a new nickname, and suddenly some phone app somewhere says this is a great place to live, just make sure you are in the nickname zone. Prices explode overnight. I'm not complaining... at least until the tax man cometh.

 

[OldShooter]

But that is really not a reason. For example, Seattle once had Boeing and satellite aerospace, Safeco, UW and of course hospitals and government offices Then in the 70s it got Microsoft. Now it has all these plus Amazon, Starbucks, and large offices of other tech companies with additional highly paid workers.

So the money available to pay for housing is increasing much faster than general inflation, because the workers are not in that same old system. Nevertheless, prices will not and cannot increase forever, unless there is another disruptive cycle of innovation and another large cohort of workers who are more productive and better paid than those who are already here. This can start another cycle.

Ha

I'm puzzled. Your tone sounds like you think you are disagreeing with me but your content is in violent agreement.

Again: Housing prices are driven by personal income. As you point out, local increases in personal income result in locally higher housing prices. Visit Detroit and you will see that the absence of personal income results in lower housing prices, too. The sword cuts both ways. So I stand by my statement that at the macro level, housing prices are limited by the growth in personal incomes. ( At the margins, housing costs can rise as a % of personal incomes, but only in a small way. Housing cannot crowd out the need to buy food and clothing.)

Re inflation: Personal income is actually a pretty good surrogate for the CPI. See graphs here: https://www.advisorperspectives.com...ld-income-growth-deflating-the-american-dream But in theory, at least, personal income should grow more in line with inflation-adjusted productivity increases than with the CPI. But that is a political debate that is IMO out of scope for this thread.

Your original post speculated that housing's tie to inflation might have been repealed. My response was that, with the slight adjustment to talk in terms of personal income, it has not and cannot be repealed.

 

[haha]

I'm puzzled. Your tone sounds like you think you are disagreeing with me but your content is in violent agreement.

Again: Housing prices are driven by personal income. As you point out, local increases in personal income result in locally higher housing prices. Visit Detroit and you will see that the absence of personal income results in lower housing prices, too. The sword cuts both ways. So I stand by my statement that at the macro level, housing prices are limited by the growth in personal incomes. ( At the margins, housing costs can rise as a % of personal incomes, but only in a small way. Housing cannot crowd out the need to buy food and clothing.)

Re inflation: Personal income is actually a pretty good surrogate for the CPI. See graphs here: https://www.advisorperspectives.com...ld-income-growth-deflating-the-american-dream But in theory, at least, personal income should grow more in line with inflation-adjusted productivity increases than with the CPI. But that is a political debate that is IMO out of scope for this thread.

Your original post speculated that housing's tie to inflation might have been repealed. My response was that, with the slight adjustment to talk in terms of personal income, it has not and cannot be repealed.

Not sure what point you have in mind. But for sure, I am thankful for learning the never before appreciated state of "violent agreement". Of course income in a certain area affects housing prices. That plus new builds are the main factors.


But this is not inflation. Inflation is a macro factor, and agree that CPI is usually similar to personal income. But this has nothing to do with why San Jose housing costs way more than Terre Haute. Main factors are are demographics and changes in local payrolls.

Anyway, I am off this discussion. Adios.

Ha

 

[daylatedollarshort]

Foreign investors play a big role in housing prices in some U.S. cities. I have wondered if the Bay Area is in a bubble, but then I look at the per square foot of housing in London and most areas here have a long way to go to to catch up to London prices.

 

[97guns]

I find it hard to fathom that housing prices are driven by personal income, it is far more conceivable that it is driven by jobs and availability of jobs. Work creates demand within the the city and that creates demand on housing. I have always lived in a booming economy in the San Francisco Bay Area. I do not know life in any other economy but I've seen and visited areas of less than thriving economies and housing always follows or lags.